Deferred Versus Postponed Retirement for FERS Employees.mp3: Audio automatically transcribed by Sonix
Deferred Versus Postponed Retirement for FERS Employees.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Speaker1:
But welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And if you're tuning in, today's topic is been a big, I guess, concern for federal employees, maybe not even the right word concern, but it's been an option that federal employees have been considering and have have been curious about when it comes to the details of each option and how they work. So today we're going to be talking about the differences between deferred and postponed fers retirement. Now, what does this mean? Well, if you're going to defer retirement, obviously, you're you're retiring, you're going to be deferring payout until this particular age. We'll get into that here in a second. And postpone retirement means you're actually eligible to collect the paycheck now, but you're just going to postpone or delay that until a later date. So let's get into the details here. And we're going to start with deferred retirement. Now. I will back up a second here and just say, why is this been a big topic? Well, federal employees have been curious, as I said, about ways they can leave service early prior to fulfilling one of the three main requirements or one of the three main eligibility requirements when it comes to collecting a full pension check. Now, I will recap what those are. If you're a first employee, you can leave federal service, no strings attached, full benefits if you satisfy at least one of these three requirements, and that's be age 60 with at least 20 years of service, age 62, with at least five years of service or have 30 years of service and hit your minimum retirement age, which is anywhere between age 55 and 57, depending upon your birth year.
Speaker1:
If you have no idea what that is, reach out to us. We'll help you out. We'll let you know what your MRA or minimum retirement age is based upon your birth year. But let's say you're not willing to wait, or you're curious what the difference in your potential paycheck could be if you decide to leave now or at an earlier date prior to hitting any of those minimum requirements. There's two options for you. So the first is deferred retirement. Now, what do we mean by that? How can you retire with a deferred benefit? Well, deferred retirement is an option for those who have at least five years of credible service. And now this does not include military buy back time. So you can't buy back five years of military time and now be eligible. This is FERS service time. You're not yet eligible for the MRA plus ten provisions. So generally speaking, you have five years of service and you're prior to or at least five years of service and you're prior to your MRA. This could be an option for you. Now, deferred. Deferred. This means you leave federal service and you keep your furs deposit in there. You do not withdraw it or take it out.
Speaker1:
These are your first contributions, the contributions that come out of each and every paycheck towards the first retirement system. You do not withdraw those deposits because you will have the option if you separate early without being eligible for retirement of withdrawing those deposits. Let's say you keep them in there. How does deferred retirement work? Well, you would then defer your pension payment until age 62. So if you retired under deferred payment and at any age, really with at least five years of service, you would not be able to collect that pension until age 62. The big thing, though, the big point and the big sticking point when it comes to federal employees choosing this option is you cannot have repeat, cannot pick up your federal employee health benefits your FBE once you start collecting your pension so you will be eligible to leave service, you will be eligible to collect a pension at the age of 62 in most cases. However, once that pension starts, you cannot re-elect or cannot pick up your health benefits again. So you should have another option in place. So let's look at an example of this and see how this may play out. For an example. Federal Employee. So let's say, Joe, Federal is 49 and has nine years of service. So what did I say the requirements are for deferred? Well, you've got at least five years of credible service and you've not yet hit your minimum retirement age.
Speaker1:
So minimum retirement age again between age 55 and 57, obviously, Joe, federal here is below that. Let's say at this point in time, the high three for Joe is 100,000 and Joe decides he's going to take a deferred retirement. How would this work? Well, the first system would calculate his pension as if he retired with full benefits at the age of 49. So with a high three of 100,009 years of service, they take 100,000, multiply it by 1%. If you remember the factors or the calculation for a FERS pension, if you're under the age of 62, they're using 1% and then multiply that by the nine years. So Joe would technically be due a 9000 per year or $750 per month pension. Now, in a deferred scenario, he will not start collecting that pension until age 62. The reason why he might do a deferred pension, again, he's not eligible for any kind of pension payment or any kind of retirement at this point at age 49 with nine years of service. So in order to get something, he will get an reduced pension based on his current status, but will not collect that until age 62. And as a reminder, Joe will not be able to continue the federal employee health benefits once he picks up that pension at age 62. So that is a big sticking point. So that's deferred retirement. That is certainly an option. I've had a lot of federal employees come up, Hey, how can I leave service? I've got another job lined up, I've got something else.
Speaker1:
But I don't want to just not collect anything. I want to get something for my time. Well, if you have at least five years deferred, retirement is an option, not something I see a ton of, but it is an option for you. On the other side, there's postponed retirement. Now, I said deferred means you're not eligible for anything at this point. You're just going to leave service and deferring that payment to a time in the future, which is age 62 in most cases. Now, if you do have a specific scenario you want to go about when it comes to deferred, reach out to me, please reach out to us. We'll be happy to go over that and share with you all the different calculations based upon the different points in which you're thinking of retirement. Postponed, on the other hand, means you're eligible for some kind of payment, but you want to postpone it so that you do not see a reduction in that payment. So in a postpone scenario, it means you're eligible for the Mara Plus ten provision. Now as a FERS employee and this is only available for FERS and please, there's something called the IRA Plus ten provision. This allows you to retire voluntarily early, but with a reduced pension. How do you hit this? Well, you have to have at least ten years of service and hit your minimum retirement age.
Speaker1:
You have not satisfied yet any of the full retirement requirements, as I mentioned earlier. But you can voluntarily early retire as a FERS employee if you have at least ten years of service and hit your minimum retirement age. So you'd normally if you took an immediate annuity in this case, you would receive a reduced pension. In this case, you said, I don't want to see a reduction in my pension calculation. I'm going to postpone that payment until I would normally be eligible, which would be probably age 60 or 62 in this case. Now, the big bonus, the big benefit of taking a postponed retirement as opposed to a deferred retirement, is you can elect to continue your F B once you start collecting your pension. So let's look at an example of what postponed retirement could look like. So let's look at this again. Joe Federal. Let's say he's hit his minimum retirement age at 57 and has 15 years of service. So he doesn't satisfy any of the eligibility requirements for full retirement. He satisfies that Myra plus ten provision. However, if he were to take that, let's look at what this calculation would look like if you took that mirror plus ten provision. So how does that work? Well, the mirror plus ten, as I mentioned earlier, you would receive a reduced pension. How is it reduced? It's reduced 5% for every year you are before being eligible for full retirement.
Speaker1:
So 5% for every year prior to being fully eligible for retirement. Typically, that's 5% for every year prior to age 62. So in this case, if you had the same high three of 100,000, they'd calculate his pension at age 57 with 15 years of service. So 100,000 times, 1% times 15 years, that's 15,000. However, his first eligibility for full retirement at age 62 based upon his 15 years. So he's going to see a permanent reduction of 25%, permanent reduction of 25%, which brings now his pension down to $11,250 per year. Could have made 15,000, but took the immediate Myra plus ten pension and now it's reduced. And now he walks away with $11,250 per year. So let's say Joe says, I don't want to see that reduction. I don't want it to be permanently reduced by 25%. What can I do at this point? Well, you can decide to postpone retirement at age 57 and not take an immediate reduced pension. He says. I want it reduced, so I postpone it if I'm Joe till age 62. Now, the the bad thing is from age 57 to 62, he does not collect anything. Maybe he's getting another job. Maybe there's another opportunity. It says, You know what, I just want to make sure I'm getting the maximum I can. I'm going to postpone this payment until age 62. At that point, it's going to be reduced and at 62, he would pick up the full 15,000 a year and be able to keep the federal employee health benefits at that point.
Speaker1:
So we cannot keep the health benefits from age 57 to 62. But when he picks up that pension again, he can re enlist it or re enroll in pick back up the federal employee health benefits DFA. B So this is a way in which federal employees will not only try to avoid that reduction but maximize their benefits. Now, this is not for everybody, right, any of these cases because in both the deferred and postponed scenarios. You're going to be going without a pension check for a certain number of years. Even in this case at age 57. It's going to wait five years before collecting something. Granted, it's going to be almost $4,000 extra per year for the rest of Joe's life. But you've got to go those five years without collecting anything. So in the right scenario, and I've talked to a lot of different federal employees, maybe they had a non federal job lined up, they had something different that they were going to be doing. They had kind of a retirement career that they were going to get into and deferred or postpone. Retirement looked like a solid option. Is it right for you? Is it something you're considering? Is it something that you have questions on? Is it a scenario that you want to run through to see if it is right for you? Well, we can run the numbers. We can show you.
Speaker1:
This is when you're eligible for deferred retirement. This is when you're eligible for a postponed retirement. This is when you're first eligible for full, reduced retirement. And you can decide what's best for you and you can plan accordingly. You don't want to just do this willy nilly. You want to make sure that you have a proper plan. You understand the consequences or the results of the choices you're going to make. And that way when you get to retirement, you have everything you need in place. There are no surprises. You're going to have the the amount of money you expected to live, the lifestyle that you want to, and if there's any additional planning above and beyond that that you need to do, we can help take care of that as well. So if you have any questions about deferred or postponed or even full retirement, reach out to us. We'd love to talk to you on an individual basis. Run a couple of different reports, go over all the scenarios, all the numbers, so there's no guesswork. You know exactly where you stand and where you're going to be in the future. And you can make changes along the way to make sure you get to where you want to go. So thank you for joining us today to talk about deferred and postponed retirement. Again, my name is Val Majeski with American Benefits Exchange. I look forward to seeing you on a future episode. And. And.
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